MAPI Sees Gradual Manufacturing Recovery

Industry group predicts 2.1% growth in 2010

As the U.S. economy continues to work its way through the worst recession since World War II, a negative near-term outlook may finally give way to a gradual recovery in late 2009 and in 2010, according to a new report.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted gross domestic product (GDP), which grew by a miniscule 1.1% in 2008, will decline 2.9% in 2009 before rebounding to 1.9% growth in 2010.

"We are in a severe global recession where manufacturing is taking the brunt of the decline. Fortunately, we are starting to see signs of economic conditions beginning to stabilize," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. "We expect that the eventual recovery will be sluggish due to continued deleveraging by consumers as they move away from excessive debt and to greater savings. Lagging improvement in the job market and persistently high unemployment rates will restrain the pace of the recovery.

"There are nonetheless inklings of a future firming economy," he added,"including the stimulus package beginning to take effect, tax cuts, rising consumer spending, strengthening commodity prices, and recent improvement in the stock market. These 'green shoots' offer a glimmer of hope moving into the latter stages of 2009 and into 2010."

Manufacturing production growth declined by 3.2% in 2008. It is likely to continue on a significant downward spiral in 2009, with expectations for an 11.8% decline this year, says MAPI. Some relief comes in 2010 with manufacturing production anticipated to grow by 2.1%.

Production in non-high-tech industries is expected to decline by 11.6% in 2009 before increasing by 2.1% in 2010. Even the computers and electronics products sector, normally a consistent growth industry, will see a drop-off this year. High-tech industrial production is expected to decline by 10.7% in 2009 before rebounding to strong 8.5% growth in 2010.

The expenditure category for inflation-adjusted investment in equipment and software is likely to decrease by 18% in 2009, preceding 8.5% growth in 2010. Capital equipment spending in high-tech sectors will also feel the pinch. Inflation-adjusted expenditures for information processing equipment are expected to fall 10.6% in 2009 before rising by 7.8% in 2010.

The forecast expects industrial equipment expenditures to decline by a severe 27% this year and to further decline by 1.8% in 2010. The outlook for spending on transportation equipment is for wide swings in either direction. The report calls for a 38.3% decline in 2009 followed by a 46.9% increase in 2010.

Exports and imports will both take a substantial downturn in 2009. After increasing by 6.2% in 2008, exports are anticipated to decrease by 13.6% in 2009 before experiencing 1.7% growth in 2010. Imports are expected to decline by 13.2% this year and to increase by 7.8% next year. The reduction in employment will continue as the current MAPI forecast anticipates unemployment to average 9.1% in 2009 and 9.9% in 2010.

In spite of the sober forecast overall, Meckstroth believes manufacturers' profitability will be in a better position coming out of the recession than they were after the previous downturn in 2001. "While it still may take years to recoup production levels, industry learned a lesson in frugality in 2001," he said. "Manufacturers did not over-invest in this cycle and they proactively cut costs at the first sign of falling demand."

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish